SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22-309
ASI SOLUTIONS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 13-3903237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
780 THIRD AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 319-8400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding on August 7, 1996 was 6,379,624.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASI SOLUTIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 MARCH 31, 1997
(UNAUDITED)
-------------- ---------------
ASSETS:
Current assets:
Cash and cash equivalents $ 6,459,710 $ 60,190
Accounts receivable, net 4,487,507 4,184,886
Prepaid expenses and other current 348,709 343,455
assets
Deferred income taxes 5,910 5,910
Notes receivable from stockholders - 389,191
----------- ----------
Total current assets 11,301,836 4,983,632
Property and equipment, net 2,697,043 2,219,801
Intangible assets, net 1,102,258 1,121,815
Other assets 747,253 269,990
----------- ----------
Total assets $15,848,390 $8,595,238
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable to bank $ - $1,844,000
Current portion, long-term debt 66,506 66,506
Accounts payable and accrued 1,866,485 1,874,139
expenses
Accrued income taxes 143,389 1,046,584
----------- ----------
Total current liabilities 2,076,380 4,831,229
Deferred income taxes 78,303 78,303
Long-term debt, less current portion 290,594 306,626
Other liabilities 130,634 136,194
----------- ----------
Total liabilities 2,575,911 5,352,352
Stockholders' equity:
Common stock 64,252 46,252
Additional paid-in capital 10,130,438 1,109,218
Retained earnings 3,470,520 3,052,450
----------- ----------
13,665,210 4,207,920
Less: Treasury stock at cost
(45,534 shares) (392,731) -
Deferred offering costs - (965,034)
----------- ----------
Total stockholders' equity 13,272,479 3,242,886
----------- ----------
Total liabilities & $15,848,390 $8,595,238
stockholders' equity =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
1
ASI SOLUTIONS INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 3 MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
-------------- --------------
Revenue $6,700,275 $3,911,416
Cost of services 3,444,723 1,742,145
---------- ----------
Gross profit 3,255,552 2,169,271
Operating expenses:
General and administrative 1,317,618 760,184
Sales and marketing 784,877 372,171
Research and development 474,644 231,125
---------- ----------
Income from operations 678,413 805,791
Interest (expense) income, net 62,232 (26,637)
---------- ----------
Income before provision for income taxes 740,645 779,154
Provision for income taxes 322,575 366,982
---------- ----------
Net income $ 418,070 $ 412,172
========== ==========
Net income per common share $0.07 $0.09
========== ==========
Weighted average common shares 6,106,191 4,667,404
outstanding ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
2
ASI SOLUTIONS INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
-------------- --------------
Cash flow from operating activities:
Net income: $ 418,070 $ 412,172
Adjustments to reconcile net income
to net cash
provided by operating activities:
Depreciation and amortization 159,622 55,799
Provision for doubtful accounts 7,500
Accrual of straight-line rent (5,560) (3,180)
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable (310,121) (714,504)
Prepaid expenses (5,254) (20,305)
Other Assets (480,803) (28,466)
Notes receivable,shareholder (2,800)
Accounts payable and
accrued expenses (7,654) 52,184
Income taxes (903,195) (258,200)
----------- ---------
Net cash provided by (1,127,395) (507,300)
operating activities ----------- ---------
Cash flow from investing activities:
Fixed assets additions (617,307) (176,743)
----------- ---------
Net cash used in investing activities (617,307) (176,743)
----------- ---------
Cash flow from financing activities:
Book overdraft 44,460
Proceeds from borrowings 570,000
Repayment of bank debt (1,860,032)
Proceeds from issuance of common stock,
net 10,004,254
----------- ---------
Net cash used in financing activities 8,144,222 614,460
----------- ---------
Net increase (decrease) in cash 6,399,520 (69,583)
Cash, at beginning of year 60,190 69,583
----------- ---------
Cash, at end of quarter $ 6,459,710 $ -
=========== =========
Supplemental disclosures of non
cash investing and activities:
Transfer of common stock back to the
Company in full satisfaction of
shareholder debt of $389,191.
The accompanying notes are an integral part of these consolidated
financial statements.
3
ASI SOLUTIONS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ASI SOLUTIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
On March 26, 1996, ASI Solutions Incorporated (the "Company") was
incorporated in the State of Delaware. Effective March 31, 1996, the
Company issued 4,625,158 shares of Common Stock in exchange for
substantially all of the issued and outstanding shares of common stock of
Proudfoot Reports Incorporated ("PRI") and 95% of the common stock of
Assessment Solutions Incorporated ("Assessment Solutions"). During fiscal
1997, the remaining 5% of the outstanding common stock of Assessment
Solutions was redeemed. The initial stockholders of the Company were also
the principal stockholders of PRI and Assessment Solutions, the two
previously separate but commonly controlled companies. After the
reorganization, Assessment Solutions and PRI are wholly-owned subsidiaries
of the Company. C3 Solutions Incorporated ("C3") was formed on September
16, 1996 as a wholly-owned subsidiary of the Company. The Company,
Assessment Solutions, PRI and C3 are hereinafter referred to collectively
as the "Company."
Effective April 16, 1997, the Company sold 1,800,000 shares of common stock
to the public at a price of $6 per share in an initial public offering (the
"Offering"). Proceeds from the Offering, net of underwriters discount and
offering costs, were approximately $9,039,000. Offering costs were
approximately $965,000. Effective on the Offering date, the Company's
Certificate of Incorporation (the "Certificate") was restated to increase
the number of authorized shares of Common Stock to 18 million shares. In
addition, effective on the Offering date, the Board of Directors of the
Company were authorized to issue up to 2,000,000 shares of Preferred Stock
in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and
the number of shares constituting any series or the designation of such
series. However, pursuant to the Certificate, the holders of Preferred
Stock would not have cumulative voting rights with respect to the election
of directors. Any such Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both,
may have full or limited voting rights and may be convertible into shares
of Common Stock.
The exchange described above has been accounted for as a reorganization
since all entities involved were under common control. The consolidated
financial statements reflect the interests attributable to the one
controlling shareholder of both combined entities at their historical basis
of accounting. The remaining interests have been accounted for as a
purchase of minority interests and the excess of the purchase price over
the related historical cost of $1,063,000 has been allocated to intangible
assets. All intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying unaudited interim financial statements of ASI Solutions
Incorporated have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information
and note disclosures normally included in annual financial statements have
been condensed or omitted pursuant to those rules and regulations. In the
opinion of management, all adjustments, consisting of normal, recurring
adjustments considered necessary for a fair presentation, have been
included. Although management believes that the disclosures made are
adequate to ensure that the information presented is not misleading, it is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997. The results
of the three months ended June 30, 1997 and 1996 are not necessarily
indicative of the results of operations for the entire year.
2. OPERATIONS:
THE COMPANY
Assessment Solutions is a management consulting firm with primary emphasis
on research and the application of simulation technology to the assessment
of sales, service and management personnel. PRI provides pre-employment
and post-employment background checks. C3 provides monitoring services for
clients who engage in large-scale use of call centers for their customer
contact functions.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 becomes effective in fiscal 1999.
Management has not yet evaluated the effects of this change on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"), which changes the way public
companies report information about segments. SFAS 131, which is based on
the management approach to segment reporting, includes requirements to
report selected segment information quarterly and entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds and reports revenues. SFAS 131 becomes effective in
fiscal 1999. Management has not yet evaluated the effect of this change on
the Company's financial statements.
USE OF OFFERING PROCEEDS
The Copmpany has used approximately $3,064,000 of the offering proceeds to
repay debt, $1,030,000 to purchase equipment and has invested the remainder
in liquid short term investments.
3. STOCKHOLDERS EQUITY:
A SUMMARY OF THE CHANGES IN THE STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED
JUNE 30, 1997 IS AS FOLLOWS:
COMMON ADDITIONAL RETAINED EARNINGS DEFERRED TREASURY STOCK TOTAL
STOCK PAID-IN CAPITAL OFFERING COSTS
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $46,252 $ 1,109,218 $3,052,450 $(965,034) $ - $ 3,242,886
ISSUANCE OF COMMON
STOCK IN INITIAL PUBLIC
OFFERING AND PAYMENT OF
OFFERING COSTS 18,000 9,021,220 965,034 10,004,254
TRANSFER OF TREASURY STOCK (392,731) (392,731)
NET INCOME 418,070 418,070
------- ----------- ---------- --------- ---------- -----------
BALANCE, JUNE 30, 1997 $64,252 $10,130,438 $3,470,520 $ - (392,731) $13,272,479
======= =========== ========== ========= ========== ===========
4. SUBSEQUENT EVENT:
On July 22, 1997, the Company entered into a Revolving Credit Agreement ("Credit
Agreement") with a financial institution. The Credit Agreement is for revolving
credit loans with borrowing availability of up to $10 million. Borrowing under
the Credit Agreement bears interest at the prime rate. The Credit Agreement's
term expires on September 30, 1999 at which time any outstanding principal and
interest is payable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
QUARTERLY COMPARISON OF RESULTS OF OPERATIONS
The Company's first quarter revenue increased 71.3% to $6.7 million from $3.9
million in the first quarter of fiscal 1997 and net income rose 1.4% to $418
thousand from $412 thousand in the first quarter of fiscal 1997.
Revenue increased in all four business areas. Assessment and Selection revenue
was $3.0 million, an increase of $1.7 million, or 133.8%, principally due to
increased revenue with existing clients and the addition of several new clients
since the first quarter of fiscal 1997.
Employment Process Administration revenue was $2.6 million, an increase of $0.5
million, or 26.3%, due principally to higher volume with existing clients.
Customer Contact Monitoring revenue was $0.5 million, an increase of $0.4
million from the first quarter of last year. This is a new business area and the
increase was due to services provided to one principal client.
Training and Development revenue was $0.7 million, an increase of $0.1 million,
or 22.5%, due in part to the addition of two new clients.
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Cost of services increased $1.7 million, or 97.7%, to $3.4 million primarily due
to personnel additions and higher equipment expenses needed to meet the
increased business volume. As a percentage of revenue, cost of services
increased to 51.4% from 44.5% due to expenses incurred to expand operations
center capacity and due to a change in sales mix to lower margin business
including customer contact monitoring and employment background reports.
General and administrative expense increased $0.6 million, or 73.3%, to $1.3
million due to personnel additions in senior management and the finance staff as
well as higher outside services associated with operating as a publicly owned
entity. Higher fixed expenses associated with the new corporate offices
also contributed to the increase. As a percentage of revenue, general and
administrative expense increased from 19.4% to 19.7%.
Sales and marketing expense increased by $0.4 million, or 110.9%, to $0.8
million principally due to the addition of senior staff to manage business units
and sales areas, and to higher spending incurred to promote business volume. As
a percentage of revenue, sales and marketing expense increased from 9.5% to
11.7%.
Research and development expense was $0.5 million, an increase of $0.2 million
from the first quarter of last year due to increased personnel, outside services
and conference expenses. As a percentage revenue, research and development
expense was 7.1%, up from 5.9% last year.
Net interest income was due to the investment of the proceeds of the initial
public offering in April, 1997. The provision for income taxes declined to 43.6%
from 47.1% due to lower New York City taxes resulting from the transfer of a
significant portion of operations out of New York City.
(Percentages are based on actual amounts as opposed to the rounded amounts shown
above.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from capital requirements, capital
expenditures and principal and interest payments on debt. The Company funds its
operating and capital needs with cash flow generated from operations,
supplemented by short-term borrowings under bank lines of credit and long-term
equipment financing. The Company raised $9 million after expenses in an Initial
Public Offering in April 1997.
Cash flow used in operations was $1,127,395 in the first quarter of fiscal
1998 due to higher receivables resulting from the growth in sales, deposits on
real estate leases, and income tax payments. Cash flow used in investing
activities of $617,307 was primarily used for furniture and computer and
telecommunications equipment for the new operations center in Melville, New
York.
In July, 1997, a new bank credit facility was established which provides up to
$10 million of credit availability. This facility expires September 30, 1999.
The Company also has a $1.9 million equipment lease facility. At June 30, 1997,
there were no
5
borrowings against the bank credit facility and $0.4 million against the
equipment lease facility.
The Company used a portion of the $9 million net proceeds from the Initial
Public Offering to repay bank lines of credit of $2 million and other payables
of $1 million.
IMPACT OF RECENTLY ISSUES ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 becomes effective in fiscal 1999. Management
has not yet evaluated the effects of this change on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds and
reports revenues. SFAS 131 becomes effective in fiscal 1999. Management has not
yet evaluated the effect of this change on the Company's financial statements.
NOTE ON FORWARD LOOKING STATEMENTS
Certain statements in this 10Q and written and oral statements made by the
Company may contain, in addition to historical information, forward-looking
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe, "expect", "intend", "estimate" and "anticipate" and other
expressions which are predictions of or indicate futures events and trends and
which do not relate to historical matters identify forward-looking statements.
Any such statements are subject to risks and uncertainties that could cause the
actual results to differ materially from those projected in such statements,
including negative developments relating to unforeseen order cancellations or
the effect of a customer delaying an order, negative developments relating to
the Company's significant customers, a reduction in the demand for the Company's
services which could impact capacity utilization as well as sales volume, the
impact of intense competition, changes in the industry, and changes in the
general economy such as inflationary pressure which could increase the Company's
cost of borrowing and those factors discussed in the section entitled "Risk
Factors" as well as those discussed elsewhere in the Company's prospectus from
its initial public offering (a copy of which will be provided without change
upon request to the Company). The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.1 Lease Agreement by and between 320 Expressway Associates and the
Company dated March 27, 1977.
10.2 Revolving Credit Agreement by and between Fleet Bank, N.A., and the
Company, dated July 22, 1997.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASI SOLUTIONS INCORPORATED
Date: August 14, 1997 By: /s/ MICHAEL J. MELE
Michael J. Mele
Vice President and Chief Financial Officer (on
behalf of the registrant and as principal
financial and accounting officer)
8